Monday, September 15, 2008

Michael Schwarz from Yahoo Research gave an invited talk at KDD 2008 on "Internet Advertising and Optimal Auction Design".

Much of the talk was background on first and second price auctions, but a particularly good discussion came at the end when Michael was talking about optimal setting of reserve prices for auctions.

A reserve price is the minimum bid for an advertiser to win an auction. Michael discussed how setting a reserve price correctly can significantly improve advertising revenue.

He did not cover the assumptions behind this claim in his talk, but details are available from his 2007 paper, "Optimal Auction Design in a Multi-unit Environment" (PDF). Briefly, setting the reserve price carefully can substantially increase advertising revenue when there are only a few bidders and when most bidders value a click well above the normal reserve price (e.g. most advertisers get $1 of value from a click but the default reserve price is $.05).

Michael also described a non-obvious effect where higher reserve prices indirectly impact top bidders because of price pressure from the now higher lower bids. Again, this is primarily is an issue of the reserve price substituting for lack of competition in the bidding, but still a useful thing to note.

After the talk, I chatted a bit with Michael about optimizing the reserve price for things other than immediate revenue. For example, we might want to optimize reserve price for user satisfaction, setting the reserve price at a level that effectively represents a high cost of user attention and filters out ads that users do not find worthwhile. Or, we might want to set our reserve price lower in the long tail of advertising keywords, making it cheaper (and bearing some of the risk) for advertisers as they try to gather information about how well their ads might work on more obscure keywords.

By the way, if you liked this post, you might also like one of Michael's other papers, "Internet Advertising and the Generalized Second Price Auction: Selling Billions of Dollars Worth of Keywords" (PDF). It is a fun paper that describes how current GSP advertising auctions do not actually force truth telling. The problem is rooted in the way there are multiple positions available and, if the lower positions still generate a good number of clicks, it can be advantageous for advertisers to offer lower bids.

Wednesday, September 03, 2008

One question that was repeatedly presented to the panel was how to make money off social networks. Underlying this question, and at least once stated explicitly, was the issue of whether social networks really matter or are just the latest flash in the pan, the latest bubble, and soon to fade if people find the riches they deliver fall short of their absurdly hyped expectations.

The best answer to this question came only at the very end, sneaking in when the session was already over, from panel chair Andrew Tompkins. Andrew said that he thought that what was most likely is that most money would be made from understanding an individual in a network and their immediate neighborhood. He expected that, as the space matured, the more theoretical work that we see now that looks at global patterns and trends across different types of social networks would continue, but the emphasis would shift to understanding each person in the network and from their behavior and their immediate neighbors to help people find and discover things they want.

Another question that came up and went largely unanswered was, are social networks really application specific? That is, are the patterns we see in one network (e.g. mobile) distinct from what we see in another (e.g. LinkedIn) because people use these tools differently? There was some evidence for this in one of the conference papers where there was a rather unusual distribution (PDF) reported in the contact lists of Sprint mobile customers because of how people use their mobile devices. The general issue here is that there is a different meaning of a link between people -- A friend? A colleague? Someone I e-mailed once? -- in each of these applications, so it is not clear that conclusions we draw from analyzing one social network generalize to others.

And this leads to another question, are social networks just a feature? That is, are social networks just a part of an application, not an thing worth anything by itself? For example, is our e-mail contact list only important in the context of e-mail? Is Facebook just a tool for communication, like IM, but not really best described as a social network? This came up a bit during the Q&A with the panel when someone suggested that perhaps we were just using one hammer -- graph analysis -- on every problem when the graph might not actually best capture what is important, the underlying activity in the application.

Though it was not discussed at all during the panel, two of the panelists focused their work on privacy, which made me wish I had asked, do we really have firm evidence that people care about privacy in these social applications? Instead, it seems people say they care about privacy but then freely give away private information when asked ([1]). From what I can tell, we do not really know to what extent privacy really matters to social networking application users, do we?

In the end, it seems many questions remain, some of them quite basic, on the where social networks are going. At this point, it is not even quite clear we know precisely what social networks are, much less whether they have an independent future.